Navigating Covid-19: An International Courier
06 July 2020
The Covid-19 outbreak is evolving rapidly across the globe creating considerable challenges, not only to health systems but also significant supply chain disruptions. Under unprecedented containment measures, which include widespread border closures and business shutdowns, many standard carriers are either unable to deliver or are incurring massive delays. This is due to the lack of passenger flights, which used to offer belly capacities accounting for the lion’s share of global air cargo traffic, as well as the difficulty in securing capacity with cargo freighters, or the cost issue associated with airlines converting passenger flights to cargo.
In face of the fluid situation and traffic loss of an unprecedented magnitude, the International Civil Aviation Organisation (ICAO) predicts an overall reduction of scheduled passenger traffic of up to 60% of seats offered by airlines for the whole year, after an 82% year-on-year slide in the first four months of 2020. This happens as forced lockdown regimes and store closures have further sustained the uprising of the digital economy, giving rise to a double-digit cross-border e-commerce sales boom worldwide.
This has placed the cross-border e-commerce operators in a dilemma. They are seeing business opportunities arising from online shopping in the wake of the forced lockdowns and the general recommendation to stay at home, but are faced with the problem of how to tackle the crisis, striking a balance between the rising fulfilment challenges and the global online shopping spree.
ECMS Express, has managed to stay ahead of the curve, riding on its integrated cross-border transportation and fulfilment solutions for leading global e-commerce platforms in key markets such as the US, Europe and Asia Pacific. In a recent interview with HKTDC Research, Eddie Lee, the company’s CEO of Taiwan, HK/Macao & Southeast Asia region, shared his views of the coronavirus pandemic’s impacts on cross-border logistics and his vision of Hong Kong’s role as a regional distribution hub in Asia Pacific.
Acting Fast to Survive the Choppy Waters
ECMS Express is a global cross-border B2C e-commerce logistics company. The company’s integrated platform lines up e-commerce companies and platforms with distribution centres, warehouses, cargo and passenger airlines and last-mile delivery services around the world, with an asset-light business model that affords much-needed flexibility and cost-effectiveness.
Explaining how the Covid-19 shakeup has heightened the vulnerabilities of this asset-light model commonly adopted among cross-border e-commerce logistic service providers, Lee said: “The cancellation of passenger flights, which used to account for more than half of global air cargo traffic, has resulted in a lot of re-routings and massive delays. And unlike normal times, when our clients can optimise their fulfilment by choosing different options involving cargo freighters or the belly capacities of passenger flights, the global containment measures have forced us to accept any price and schedule that remains operable.”
There have, however, been some upsides for the business following the first wave of Covid-19 infections hitting mainland China and Hong Kong since late January. Lee said: “We achieved a surprising double-digit growth in January and saw a more than 100% sales jump in February when people were sourcing globally online for personal protective equipment (PPE) such as surgical masks, ventilators and hand sanitisers.”
As the official e-commerce partner of one of the world’s largest online marketplaces, ECMS Express has helped a lot of shoppers handle their packages’ shipping, including customs clearing across different major shipping directions, such as Japan-Hong Kong, US-Taiwan, Europe-China and US-China. Lee said: “We’ve seen an enormous jump in PPE shipments as we serve as the exclusive fulfilment partner tracking all these orders for our client from its warehouses in Japan to Hong Kong.”
As the Covid-19 turmoil continues to squeeze cargo capability, with airlines grounding most, if not all of their fleet, the global logistics sector has incurred great costs and been put under considerable scheduling pressure. From March onward, the cost of air shipments has been rising so rapidly that ECMS Express, as with many of its peers, had no choice but to review and revise service fees on a more frequent basis. Lee said: “With fewer passenger planes in the air, airfreight costs have risen sharply, in some cases tripling from one week to another. As a result, we’ve had to keep revising our service quotations to include the latest ‘surcharges’ for our e-commerce platform partners every week.”
With cross-border fulfilment becoming more expensive, ECMS Express saw a sharp slide in shipment requests starting in March. Expanding on the problem, Lee said: “Complicating matters further is the fact that some of our partners’ warehouses in Europe and the US have also stopped operations as Covid-19 has spread. Those still in operation, meanwhile, are running out of stock due to rising demand and a disrupted global supply chain.
“Cross-border fulfilment has become more challenging as many countries and regions have put in place different export bans as a means of safeguarding the supply of critical products, such as PPE, for local use.”
The slowdown of cross-border activities has caused e-commerce players to downscale shipments to some Asian markets, including the Philippines, Indonesia and Thailand. In Hong Kong, the forward deployment warehouse operated by ECMS Express on its client’s behalf has been running at less than 10-20% of its normal stock level over recent months, although there are already plans in place to restock it imminently in order to better serve the Asia-Pacific market.
Lee has swiftly adjusted his company’s business model by reaching out to new cross-border e-commerce partners to secure much sought-after PPE shipments from manufacturers in the Guangdong province, while reviewing the firm’s overall cost structure to better optimise operations and strengthen cash flows. He said: “To better navigate the choppy waters, we’ve requested that our new clients make upfront payments in a bid to avoid bad debt and late payments.”
Hong Kong as an Asian-Pacific Distribution Hub
As worldwide containment measures start to take effect and the community spread of Covid-19 is increasingly under control, many Asian countries, including China, have gradually moved onto a ‘new normal’, featuring rebounding economic activity and consumer sentiment, way ahead of their western counterparts. As shown in several global consumer sentiment surveys, consumers in mainland China and Southeast Asian markets have demonstrated a higher level of optimism about economic prospects and therefore a higher willingness to spend.
As online shopping quickly becomes the norm across markets and age groups, Lee sees a huge potential in Hong Kong’s e-commerce future as the region rides out of the Covid-19 crisis. He said: “Before Covid-19 kicked in, the ratio of our company’s turnover between Asian and non-Asian markets was 30:70. Now, it is just reversed.”
As Asia’s cross-border e-commerce business is expected to keep growing, even after the Covid-19 pandemic ends, some western brands and online marketplaces are already planning ahead to establish footholds in the region. Lee said: “We have been receiving more and more enquiries from brands all over the world asking us how to kick start their e-commerce businesses in Asia, especially with a presence in Hong Kong as a regional fulfilment or distribution centre.”
Thanks to the city’s status as a free port, Hong Kong does not levy any customs tariff or value added tax (VAT) on imports or exports. This is widely appreciated as an unrivalled advantage for brands and retailers, big or small, seeking to set up a showcase to test the market before making greater inroads into the Asian market. Instead of relying on different bonded warehouses in each country/region to optimise tariff payments, many new-to-the-market brands have found it more cost-effective to establish a regional distribution centre (RDC) to consolidate shipments for regional fulfilment. This has also become a potentially precautionary measure for brands which have experienced serious supply chain disruption during the Covid-19 outbreak.
Lee explained, saying: “During the Covid-19 outbreak, Hong Kong, thanks to its SARS experience, has proven to be a highly resilient logistics hub for global shipments. We have so far been able to maintain not only normal international cargo movements, but also the local last-mile delivery services throughout the pandemic. This serves as a proof of how well-positioned and ready Hong Kong is to better serve the promising e-commerce development across the region in Japan, South Korea, ASEAN and Australia. It goes without saying that Hong Kong is by far the freest port in Asia, charging no VAT or import tax whatsoever.”
With a firm belief that every cloud has a silver lining, Lee sees a recovery of international trade in the offing, saying: “We expect that the demand for cross-border logistics will continue to grow as capacity returns to normal and pent-up demand further releases towards the holiday season at the end of the year. We’ve started to think about our capacity in Q4, which is traditionally the peak season for global logistics, with hopes for ‘revenge spending’ or frenzied shopping.”
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